E-Trade's stock baskets offer variety of choices for the investor

Online stock brokerage firm E-Trade Securities Inc. has introduced a new service that offers individuals more investing choices.

The Menlo Park company recently introduced E-Trade Stock Baskets, an investment process that allows customers to purchase and trade entire portfolios of individual securities in dollar -- rather than share -- denominations.

The baskets are made up of stock samplings from different sectors. Each basket -- off the shelf or build your own -- can contain up to 50 stocks, allowing investors to effectively diversify holdings in an effort to reduce risk.

Investors can change the contents of their baskets at any time by adding or removing stocks. For example, if you are a die-hard Costco shopper and you have a Standard and Poor's 20 Basket, which includes Wal-Mart, you can edit the basket to remove Wal-Mart (WMT) and replace it with Costco (COST).

The initial investment is $5,000 ($2,500 for IRAs) and minimum subsequent investments must be $500. Fees are an annual low percentage, based on total assets in the basket.

"We wanted to provide a tool that is well-suited to the long-term equity investor," Mr. Randall says.

Standard & Poor's, one of Wall Street's most-respected research firms known for its independence and objectivity, has created more than 20 off-the-shelf baskets exclusively for E-Trade, based on benchmark indexes (Index Baskets), quantitative investment style (Style Baskets), and various sectors of the economy (Sector Baskets).

Here is a brief description of each type of off-the-shelf basket:

? Index Basket. Contains 20 to 30 stocks that reflect the underlying benchmark index. For example, the S&P 20 Basket is a 20-stock sampling of the S&P 500 Index across all of Standard & Poor's defined sectors.

? Sector Basket. Contains 10 to 20 of the largest market capitalization stocks within a specific sector. For example, the Technology Basket contains the 20 largest technology companies by market capitalization according to S&P.

? Style Basket. Contains 20 stocks that reflect a specific quantitative investment style based on market capitalization, price/earnings ratio and price/book ratio. For example, the Large Cap Growth Basket includes 20 stocks with a market capitalization greater than $10 billion, as well as price/earnings ratios and price/book ratios that exceed the median ratios for all such stocks.

There are somewhat competing services in the marketplace ranging from online DRIPs to asset allocation products like E-Trade's baskets. One company, Netfolio, went out of business; another, Folio FN, reduced 40 percent of its staff.

Fidelity Investments launched a limited product last summer and Charles Schwab delayed the launch of its basket-type product.

Says Lyndsay Mills of the Silicon Valley-based nonprofit Financial Knowledge Network: "With folios or baskets there are huge advantages with taxes, because you decide when you want to buy and sell. That's one of the huge ramifications of mutual funds."

Ms. Mills, executive director for the group, says investors must research stock value. "If you're really savvy, you could build quite a portfolio," she says. "I think what E-Trade is trying to do is provide options for those who don't want a cookie-cutter approach."

Judging by inquiries to E-Trade's toll-free number and foot traffic in the New York retail center, there seems to be a great deal of interest in the stock baskets.

"It's too early to disclose metrics. But it's been well-received," says Mr. Randall. "It's now a very timely product given the market.

Does E-Trade see baskets changing the face of investing? Mr. Randall says he is quite optimistic.

"Any innovation is often taken with pause, but over time I think it will provide great things," he says.